Convictions for illegal cigarette trafficking upheld

Appellant’s convictions for fraudulent cigarette purchases and illegal distribution are affirmed. Appellant did not have valid documentation when he made bulk cigarette purchases and submitted no documentation that he remitted sales tax on the 40,000 cigarettes he purchased “on three separate occasions within a short period of time.”

Overview

“Individuals engaged in illegal cigarette trafficking in Virginia are known to take advantage of the available sales tax exemption for retail businesses, and to purchase large quantities of cigarettes from wholesale outlets and ‘big-box’ stores, such as Sam’s Club or Costco.

“Even though they do not actually represent operating retail businesses, cigarette traffickers nonetheless present apparently legitimate documentation of entitlement to the sales tax exemption when they purchase cigarettes at wholesale, then resell those cigarettes for profit in states where the price of cigarettes and the sales tax are much higher than in Virginia.”

Appellant was convicted “for two counts of fraudulently purchasing cigarettes in violation of Code § 58.1-1017.3, three counts of possessing with the intent to distribute tax-paid, contraband cigarettes in violation of Code § 58.1-1017.1, and two counts of money laundering in violation of Code § 18.2-246.3.”

He appeals on several grounds.

Fraudulent purchases

Along with his Sam’s Club application for a membership for his business “Cigarette Express Number 1,” appellant signed an ST-10 form from the tax department, which exempts purchases from paying sales tax on items that are resold through a retail business. To obtain a business membership from Sam’s Club, he was also required to provide an ST-4. Appellant’s 2015 ST-4 listed “Cigarette Express” and an address on Hull Road. The form advises that if the holder ceases doing business, the certificate expires immediately. Appellant did not renew the ST-4 in 2016 and, in fact, sold Cigarette Express in 2015.

Appellant was issued a business membership. In February 2017, appellant made three purchases of cigarettes through his Sam’s Club account.

He appeals his fraudulent-purchase convictions on the basis that his ST-10 was still valid because it had not been revoked in writing. “It is undisputed that at the time of the February 13 and 16, 2017 cigarette purchases, the ST-10 had not been revoked in writing by the Department.

“Appellant relies upon a section of the Virginia Administrative Code addressing certificates of sales tax exemption[.] … According to this regulation, the entity that accepts the ST-10 … is entitled to rely on the form’s validity until the Department issues notice that the certificate is no longer acceptable. Nonetheless, the last sentence of the regulation explicitly acknowledges that a certificate of exemption may be invalid even without written notice from the Department. …

“[U]nder Code § 58.1-613(F), ‘[i]f the holder of a certificate of registration ceases to conduct his business at the place specified in his certificate, the certificate shall thereupon expire, and such holder shall inform the Tax Commissioner in writing within 30 days after he has ceased to conduct such business at such place that he has so ceased.’ (Emphasis added).

“By operation of this provision, the certificate of registration for Cigarette Express expired when appellant sold the business in 2015 and ceased operations. Nonetheless, appellant never advised the Department that he had sold Cigarette Express. Nor did appellant comply with the Virginia Administrative Code regulation requiring a dealer who sells his business to return the certificate of registration to the Department. See 23 VAC 10-210-3090(A).

“Viewed in the light most favorable to the Commonwealth, the evidence supported the jury’s conclusion that written revocation by the Department was not the only means by which a ST-10 may be rendered invalid. …

“The uncontroverted evidence proved that Cigarette Express had no business license and was not an operating business in February 2017. In fact, appellant sold Cigarette Express, and the business license lapsed, at the end of 2015. Appellant did not notify the Department that the business had ceased operating, did not return the ST-4 to the Department as required, and did not file a return for sales taxes collected through the business for sales of cigarettes or anything else.

“Nonetheless, in February of 2017 appellant purchased quantities of cigarettes from Sam’s Club using a membership for a business that no longer existed, and, in doing so, relied upon the ST-10 filed in 2015 to avoid sales tax upon the purchases. At that time, however, the ST-4 for Cigarette Express was invalid and, consequently, the ST-10 was invalid also.”

Distribution

“Challenging his convictions under Code § 58.1-1017.1, appellant argues that the Commonwealth failed to prove that he possessed cigarettes with the intent to distribute them. The Commonwealth proved, however, that appellant purchased, with cash, more than 40,000 cigarettes on three separate occasions within a short period of time.

“Testifying as an expert on cigarette trafficking, Wyatt stated that the purchase of such quantities with cash was inconsistent with possession of cigarettes for personal use or in connection with a legitimate business. Appellant submitted no documentation to the Department indicating the collection of sales taxes in connection with cigarette sales.

“Upon the Commonwealth’s evidence, a reasonable finder of fact could conclude beyond a reasonable doubt that appellant had the intent to distribute the cigarettes he purchased and that he was guilty of three counts of violating Code § 58.1-1017.1.”

Moreover, because appellant’s felony convictions for illegal purchase and distribution of cigarettes are affirmed, he has no basis upon which to challenge his money laundering convictions.

Affirmed.

Jiddou v. Commonwealth, Record No. 1910-18-2, Dec. 27, 2019. CAV (Clements) from Chesterfield Cir. Ct. (Johnson). Davide G. Boyce for appellant, Rosemary V. Bourne for appellee. VLW 019-7-242, 17 pp. Published.